2004 , 2006 comparisons volatility expected to continue till mid may/june

In 2004 market held on sideways till almost mid april
The final carnage started in may and the carnage was over by mid may/june of 2004.
In 2004 it was due to a change in the govt, bjp lost and the left coalition came into power with congress (congress part wasn't necessarily bad, it was the left coming into power that scared off fiis :), just see what they are doing to cement/steel prices and you will understand)

So: What will be the final trigger this time????
Problem in the middle east?
Lower infy guidance?
(btw infy guidance expectations are fine = 30% in $ term but re guidance could be 23-25 which is on the lower side)
More monetary tightening?? Crr hike+repo hike due to sustained inflation trouble??
I don't know :)

Now remember that the C wave if/when it comes
under 355x and 200 sma has the potential to be a very nasty move.

Remember fear>>greed
:)

all correctives should be contained by 3971 area which is the initial collapse level and 0.618
just as 1931 or so was the corresponding level in 2004.

Dow on FIRE!!!

Can we take that as a positive?
Another pullback rally possible?
Target for pullback rallies remain 3900-3971

Is liye 3570 ke aas paas bears ko bola tha
Hedge yourself
nf hit a low of 3580 or so in the recent downswing
i am fairly sure the 3800 put option would have traded for 200+
almost my 2x target dunno if the bears got an exit.

Anyway please refer to 2004 charts.
B waves can be ridiculously long affairs :).
IF bulls can regain 3700 level then we start a pullback once again
First target = gap fill nf gap down reads 3720-3750
nifty gap down reads 3760 or so.
Above 3700, 3720-3760 region
above 3760 3840-3900 region
Above 3900 max 3971.


Now just because we go to 3900-3971
I would not change my bearish view.
The key in a volatile+insane market is to remain hedged.
Bears who are hanging on to unhedged short positions need to come up with a plan quickly now.
For now market is roughly in a falling channel
wave a/1 down = 3900-375x, wave2/b=375x-382x
and right now falling channel reads maybe 3694 in price.
0.382 retrace which is typical for w4 reads 3700 in price.
the channel in price/time might be 3740 or something
dunno

If market is perky enough to give me 3900 then i wouldn't mind exiting some delivery and moving into more cash.


For now I continue to trade my short term trading system the one I mentioned in my last post. So it doesn't really matter, which way the trend is
I will make my money :). In fact the more lack of trend+higher the volatility the more i can make.
And for those who are interested , no the system is not for sale
reason a) code is unprotected
reason b) system has a lot of components + almost 1000 hours of testing+optimization so I'm not gonna sell it for 5000-10,000RS and I doubt anyone will pay 50,000 Rs for it :)
So until I get my lazy act together and copy protect the code, you can come to mahen's conference for the calls.

The mathematics of hedging

I have a trading system
Long only= 126% per year with drawdown
of 16.5%
Short only = 980% per year
with drawdown of 14.41%

Now what happens if you trade long+short simultaneously???
annnual return 1301%
drawdown of 11.9%
:)

The market is not as simple as many people think
And most amateur traders like myself do not trade long + short simultaneously
because we're used to the traditional wisdom
of
a) follow the trend
b) follow the market trend

problem is
right now
there is no real trend.
There is chaos+confusion.
Only the nimble traders will survive :)
Good luck for the next 3 months!!
This monetary tightening has to stop+inflation has to come under control.
until that happens the corrective mood will continue.

Building houses and breaking them down :)

Keep in mind 3220-2920-2600 possible
4th side of a very big house is being built (wave IV in elliot terminology)
the top is not in place
once the top is in place the market will correct the true bear market correction :)
How do bear market corrections work?
You remove the top do some demolition and trying to build a new floor on top of the existing ground floor + 4 walls that you already built.

Anyway what do i expect? 2004 like correction in price/time , not a bear market. just a mini correction within a much larger bull market.
lets say fib ratios connected to the 2004 correction in price/time


so maybe a bottom by may/june and around 2920 in price

The endless cycle of the markets
the eternal roller coaster
Some people get high on the rush.
Some people manage to make a living out of the fluctuations?
Which one are you? which one am i? :)
I don't make much, still gotta work on the discipline part.
I Had a discussion with a friend on friday who chided me for saying short 3900 call for 70 to hedge longs. that call is likely to expire worthless now.
or buy 3800 put for 115, target 230 : retest of 3570. the put is now almost near the target price of 230.

His rationale was trend is up! follow the trend
the trend is your friend.
Now as brilliant as my friend was
he missed the bigger picture
the trend is present in multiple timeframes.

First come up with any trend following system
Lets say we like 13 ema
the direction of the 13 ema is our trend
its an ultra simple system
No i am not saying 13 below 26 or 13 above 26, ema crossover
that is unecessary complexity + lag

the direction of the 13 ema itself!!
you could also use any other ema/sma or length as per the cycles in your stock.

Now what does nifty trend look like??
what did it look like at 3820?
weekly 13 ema was falling!!! 3886! and that was the bear lane which i mentioned earlier
my bullish friend must have been aware of 13 hour ema rising and 13 day ema rising that he probably felt from the previous few days action. He probably also knew 13 month ema rising (he might be calling it 200 sma near 3556 etc, the two look similar)
And as brilliant as I am , I didn't buy that april put either!!!
In fact i saw it too the rising trend+all mechanical systems long even though my instincts said it was time to short!! However when we did close
I noticed one of my brilliant systems was short :).
But by then it was a bit late.

3826 was like 3900
nested 0.5 retracement
first 4240-3556 - 50% = 3900
then 3900-37xx - 50% = 3826
Did i act?
nope i waited for my mechanical system to short :)
Today market gapped down to first support target 3700
Shorting nifty at discount is just not my cup of tea
instead i shorted prajind and centurytext and jpassociate. jpassociate managed to gap up by a ridiculous amount and took my stop out , so net net didn't make much.


Anyway the roller coaster will always be here: no tension.
Ever been on a roller coaster?
Some people try to resist the drops! they tighten up their stomach muscles
and take unecessary tension!
When you let go of trying to be in control then that knot in your stomach will disappear.
Thats when you can truly enjoy the roller coaster.
Same with the markets, let go of any preconcieved notions. Use any trend following system which tells you which way the roller coaster is going and follow the trend.
Keep in mind that the falls are usually sharper than the rallies.
The falls are gut wrenching affairs, which can be exhilirating if you are short!!! If you are long they will be quite painful!
Just keep in mind which trend you are following and when/where it changes.
Enjoy the ride !!

Have already posted one solid nifty trend following system
which works in 2 timeframes
7/105 on 10 minute / hourly
would probably also work great on daily charts!! but keep in mind alignment/optimization issues.


Tomorrow I guess we will look to short again
remember we're looking for 3570 nifty spot.
once 200 sma(which now reads 3625 or so on my nifty chart) and 355x/357x(old lows) are broken on closing basis the we have a high probability of C wave down.
The C wave should do the lower targets which everyone has been talking about for quite a while now.

for now 355x-3900 range remains but it could break very very quickly and very dramtically

Hedge 3800 put taken near 3900

RBI Hike
= interest rate sensitives to tank some more
banks,auto

most defensive=pharma/fmcg
pharma was pointed out few weeks ago near old bottom at 3570
and look at the stellar outperformance
The thing with markets is when the market starts going down, everything tanks
weekly 13ema trending down, reads 3850 or so
daily 13 ema was trending up : it read 3760 or so which gave us the fast bounce


If you took march put you had to book at 3760
If you took april put your target remains 3570
so you have 3 options
a) wait for 3570, book there, since that is 2x target
b) wait for 3570 , hedge there since you have mega profits to hedge
c) considering the fact that there is a very very remote bullish possibility of the initial rally supports 0.5/0.618 holding and much higher levels one can hedge
at the first support : 3700 region 0.618 retrace of initial rally.
Best bet = short 3600 put for 60+


Longer term vision.
A very large house is being built. Now in order to build a large house a large foundation is needed.
The ground floor for a bull market usually comes from a period of sideways consolidation.
We have already built 3 sides. the 4th is being built.
The top is not yet in place :). Thats the good news.
This is the bigger picture. Smaller picture if you remember the remote possibility of a flat correction in w4 position. But for that market has to continuously trade above 3656 for next few weeks.

sensex 4k-14k didn't happen overnight. The market came out of a multi year consolidation before it gave 200% gains.

The next 6 months will lay the foundation for sensex 20k
Short term volatility will continue retest of may 2006 panic lows is a remote bearish possibility.

The next big impulsive upmove in nifty might be when monetary policy easing starts.
First hint of easing and we will be off to the races again.

If you are a bull
Watch infosys 200 sma near 1970 or so.
a) infosys doesn't have huge interest costs
b) fundas are still up
c) results to come on 13th so its not out of the game yet.